The BSE Sensex posted its biggest daily percentage gain in almost three weeks on Wednesday as private sector banks such as ICICI Bank rose on value-buying, while a weaker rupee bolstered software services exporters such as Infosys.
Investors seem to be pinning their hopes on the government being able to gain some traction on bills to liberalise the insurance, pension and banking sectors during the winter session of parliament which begins on Thursday.
"Going into the winter session, except the retail sector where there is a question mark, people are quite bullish on the market and a rally in December is expected," said Hitash Dang, vice president at Jaypee Capital.
Foreign portfolio flows continue to remain strong for the near term, added Dang.
However, the government, reduced to a minority for the first time since coming to power in 2004, is scrambling for support and its chances of success look bleak.
The benchmark Sensex rose 0.72 percent, or 131.06 points, to end at 18,460.38.
The broader Nifty rose 0.78 percent, or 43.25 points, to end at 5614.80, closing above the psychologically important 5,600 level.
Private banks such as ICICI Bank Ltd
Shares in software services exporters rose, tracking the weakening rupee, which has fallen 2.4 percent against the U.S. dollar this month as of Tuesday's close.
Tata Consultancy Services
Retail stocks rose on hopes that the FDI issue would be taken up in the winter session of parliament.
Pantaloon Retail India Ltd
The report sparked speculation that the resignations by Kalanithi Maran and his wife from Kal's board of directors could signal a potential change of ownership of SpiceJet.
Shares in Kingfisher Airlines Ltd
A spokeswoman for Blackstone declined to comment on the report, calling it "a pure speculation story." A UB Group spokesman also declined comment.
Speculation over a potential cut in fuel taxes also helped Jet Airways
However among stocks that fell, Honeywell Automation India
Honeywell Asia Pacific plans to sell shares in its Indian unit to meet market regulator requirements mandating listed companies must have at least 25 percent public shareholding by next year.
Shares in Indian software and back office provider MphasiS Ltd